AltaGas Enters Deal to Buy Pacific Northern Gas (Canada)

AltaGas Ltd. announced that it has entered into a definitive agreement with Pacific Northern Gas Ltd. (PNG) pursuant to which AltaGas will indirectly acquire all of the issued and outstanding common shares of PNG  for $36.75 cash per PNG Share pursuant to a statutory plan of arrangement under the Business Corporation Act(British Columbia).

“PNG is an outstanding strategic fit for AltaGas,” said David Cornhill, Chairman and CEO of AltaGas. “PNG’s management team and employees have a strong track record of delivering safe and reliable service to their customers and have excellent relationships with the communities in which they operate. We are pleased to welcome all PNG employees to our team. AltaGas has a long history of operating natural gas utilities across Canada and we will continue to deliver safe and reliable service to our customers.”

The offer represents a 20 percent premium based on the $30.50 closing price of PNG Shares on October 28, 2011 and a 28 percent premium based on the volume weighted average trading price for the 20 prior trading days. The transaction is valued at approximately Cdn $230 million, including assumed debt expected to approximate $85 million and $5 million preferred shares. The transaction values the regulated rate base of approximately $174 million at approximately 1.2 times. The regulated assets earn an allowed rate of return of approximately 10.1 percent with a weighted average equity thickness of approximately 44 percent. The acquisition is expected to be immediately accretive to earnings and cash flow. The estimated $140 million cash required to close the transaction will be funded by existing credit facilities and cash on hand.

The acquisition of PNG is consistent with AltaGas’ strategy of building one of Canada’s leading energy infrastructure companies underpinned by low-risk, long life assets. The transaction will result in a 50 percent increase in AltaGas’ regulated rate base to over $500 million and increase customers from 75,000 to more than 110,000. Increased natural gas exploration taking place in areas such as the Montney and Horn River and increased industrial activity in northern BC are expected to result in rate base and customer growth as areas such as Dawson Creek and Fort St. John see increased economic activity. There is also significant geographic alignment with other key AltaGas assets such as the Bear Mountain Wind Park and the Younger facility, BC’s only natural gas liquids extraction plant.

PNG’s run-of-river assets also fit well with AltaGas’ renewable strategy. AltaGas expects to complete construction of three of its run-of-river projects by 2016. The first, 195 MW Forrest Kerr project is expected to be in service in July 2014. The McLymont Creek and Volcano Creek projects with approximately 82 MW in total are expected to be in service in mid-2015 and mid-2016 respectively.

Growing North American natural gas supply and continued attractive natural gas prices in Asian markets continue to support growth of an LNG industry in western Canada. PNG’s Western system is well positioned to capitalize on the growing demand for additional pipeline capacity along the Summit Lake to Kitimat/Prince Rupert corridor.

The Board of Directors of AltaGas has unanimously approved the Agreement. Likewise, the Board of Directors of PNG unanimously approved the Agreement and concluded that the transaction is in the best interest of PNG and the PNG shareholders. PNG’s largest shareholder and PNG’s directors and senior officers, who collectively own or exercise control or direction over approximately 25 percent of PNG’s shares on a fully diluted basis, have agreed to support the transaction and vote their PNG Shares in favour of the transaction.

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Source: AltaGas, November 1, 2011